Nishat Chunian Limited (PSX: NCL) announced its FY18 result yesterday which saw the company post solid growth of almost 55 percent in its full year earnings. The company managed to increase its consolidated top-line by 14 percent helped by the rupee depreciation and an increase in cotton yarn prices which helped its spinning division deliver strong sales. NCL’s gross profits picked up by 20 percent while its gross margins also increased due to inventory gains on cheaper cotton procurement. Export rebates also helped the firm enhance profitability.

The company managed to keep its expenses in check which saw limited growth. On the other hand, NCL’s other income managed to increase by more than three-fold which could be attributed to gain on sale of investment in associated companies. The company’s finance costs also picked up by 21 percent on the back of aggressive raw material purchases as well as capex requirements.

Going forward, NCL is set to gain from its sizeable investment in balancing, modernisation and replacement activities. Recall that the company has revamped one of its defunct spinning units last year while also adding 99 new looms in its weaving segment. The dyeing and printing division has also seen an investment of Rs340 million. The company might also benefit if further devaluation of the rupee takes places which cannot be ruled out in the current economic scenario.

The government has decided to exempt zero-rated sectors including textile, leather, sports and surgical goods from the increase in gas prices to lower their cost of production by giving a subsidy to the tune of Rs44 billion which will benefit firms like NCL. In addition, the recently amended finance bill has also provided slashing of duties on more than 80 items which would provide relief to the local industry worth almost R5 billion. NCL’s gross margins might pick up in the coming year owing to rebates coupled with a decrease in cost of production.